Labor rules out online retail tax

The federal government has dealt retailers a blow in their campaign for quick relief from online competitors, with Assistant Treasurer
Bill Shorten
saying that lowering the $1000 GST-free threshold for imported goods would be “crazy".

In a draft report on the future of retailing released yesterday, the ­Productivity Commission said it agreed “in principle" with struggling retailers that the tax-free threshold should be lowered, but said the cost of ­collecting the tax would outweigh the extra revenue.

The commission recommended the government investigate how to streamline handling of imported packages to make tax collection easier before it lowered the threshold, but warned any change could be “some years" away given the postal system is already straining under the weight of the online shopping boom.

It also called for a relaxation of zoning and planning regulations to make it easier to develop shops, and for fully deregulated trading hours to allow bricks-and-mortar retailers to compete with online shops that operate 24 hours a day.

The $55 billion retail industry is battling the worst trading conditions for nearly 50 years, with shoppers directing spending online thanks to the high Australian dollar, but the commission noted this was only one reason that foreign online purchases were up to 50 per cent cheaper.

Australia’s retailers had lower ­productivity than those in North America and Europe and the gap was widening, the commission found.

Australian retailers generally had higher labour and rent costs than their overseas counterparts, but many recouped these through higher prices and margins, it found.

The Fair Imports Alliance, which represents members of the Australian Retailers Association and retailers in the toy, book, and sporting goods sectors, said the government needed to act sooner rather than later to create a more level playing field for retailers.

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“It’s not a surprise to us that there’s been identified inefficiencies with Customs – that’s a particular issue that we’ve been making clear for quite a long time," the alliance’s spokesman, Brad Kitschke, said.

“What is clear is that the Productivity Commission has said that for the benefit of the entire economy, the threshold needs to be lowered in principle.

“So we’d call on the government to take steps to ensure the processes of the Customs and Border Protection Service can be changed and without delay so the threshold can be ­lowered."

But Mr Shorten dashed hopes of any immediate fix. “Even though we do support as a general principle the idea of tax neutrality – in other words, the tax should be the same on all items – the idea that the taxpayer, in order to enforce that principle, would spend $1.6 billion, or three times as much as the tax would raise, is just plain crazy," he said.

He said the government would hold an inquiry into streamlining Australia Post and Customs if the commission called for it in its final report, but added: “Let us also be very clear: that process could take several years."

The GST exemption was not the primary reason consumers bought imports online, the commission found. Price, choice and convenience were “far more important drivers".

The commission examined the extra revenue that would be collected with different GST thresholds and the cost of collecting it. Reducing the threshold to $100 would raise an additional $470 million in GST revenue from another 15 million parcels, but would cost about $715 million.

A modest lowering of the threshold to $900 was “feasible", with revenues around double the $8.6 million cost. But the commission found the change would do little to achieve tax neutrality because most parcels would pass through without duty or tax ­collected. Most parcels imported into Australia are valued at less than $100. About 45 million parcels came into Australia in 2010-11.

“The current Australian processing system, particularly for mail, was never designed to cope with processing volumes of this magnitude and it is clear that it simply could not cope with a dramatic and sudden lowering of the threshold that would be required to achieve tax neutrality," the commission said.

The commission also found the federal government was losing out on about $1 billion a year on forgone taxation revenue on “intangibles" such as downloads of software, music and games.

It urged the government and the Australian Taxation Office to maintain a “watching brief’ on international initiatives that may better ­enable revenue collection from these products.

In terms of hours worked, Australia still ranks lower than most Organisation for Economic Co-operation and Development countries and this gap has been increasing.

“While it may not be realistic for Australia to attain identical productivity levels to those achieved overseas – especially compared to the US – there would be benefits for consumers and retailers alike if Australian retailers started to close this widening," the commission said.

“The threshold needs to be dealt with and the fact that there will be an independent taskforce to give it even more emphasis and exploration we think is a good thing," she said.

Australians spent $4.2 billion on overseas online purchases in 2010, about 2 per cent of total retail sales, the commission estimated, and called for the Australian Bureau of Statistics to collect more data on online shopping habits.

The commission said local retail sales were undergoing a structural shift, with consumers spending a smaller proportion of their income on goods as they became cheaper.